The Department for Work and Pensions has been criticised for making wrong decisions on the ability of benefit claimants to work at "considerable cost" to the taxpayer.

The Public Accounts Committee (PAC) said there had been much criticism of Atos, the firm contracted to conduct so-called work capability assessments (WCA), but it warned that most of the problems lay with the department.

The WCA tests were introduced in 2008 to assess entitlement to Employment and Support Allowance. Atos was paid £112.4m to carry out 738,000 assessments in 2011/12.

The MPs' report said: "The Work Capability Assessment process is designed to support a fair and objective decision by the department about whether a claimant is fit for work, but in far too many cases the department is getting these decisions wrong at considerable cost to both the taxpayer and the claimant.

"The department's decisions were overturned in 38% of appeals, casting doubt on the accuracy of its decision-making.

"Poor decision-making causes claimants considerable distress, and the position appears to be getting worse, with Citizens Advice reporting an 83% increase in the number of people asking for support on appeals in the last year alone.

"We found the department to be unduly complacent about the number of decisions upheld by the tribunal and believe that the department should ensure that its processes are delivering accurate decision-making and minimising distress to claimants."

Margaret Hodge, who chairs the committee, said the DWP was getting "far too many" decisions wrong on claimants' ability to work and called for a "substantial shake-up" to improve "the quality of decision-making".

She told Sky News: "I think it's terrible for the most vulnerable group in our society - those people who are dependent on disability benefits.

"We were shocked particularly to find that there are 1,300 people who have died since the DWP told them they were fit to work."

The committee said the DWP's evidence during its hearings was not always consistent with views of other witnesses, with different interpretations of statistics.

The MPs said they could arrive at a clear conclusion about whether performance was improving and recommended that the National Audit Office should provide up-to-date performance data.

Employment minister Mark Hoban said: "This report completely fails to recognise the considerable improvements we have made to the Work Capability Assessment since coming to power in 2010, having inherited a system from the last government that was not fit for purpose.

"Rather than scaremongering and driving down the reputation of the WCA, critics might like to acknowledge the fact that independent reviews have found no fundamental reforms are needed to the current process because of changes we're making.

"This coalition Government is determined to help those who are found fit to work into employment, but those who aren't will still get comprehensive support."